Chisani says it would be wise to start focusing on conventional dividend-paying strategies, such as looking at financials and insurance companies.
“Those would be beneficiaries of higher rates as long as rates do not get out of control.”
Banks lend out money at higher rates than they borrow, pocketing the difference. When interest rates go up, the spread earned by banks widens.
But Chisani also warns investors to pay attention to the default rate at financial institutions. If rates are rising at a pace that’s beyond expectations and places pressure on consumers’ mortgage payments, it could hurt bank earnings.
These days, banks are generous dividend payers. Several large U.S. institutions — including JPMorgan Chase, Bank of America, Morgan Stanley and Goldman Sachs — raised their payouts in 2021.
Investors can gain access to the group through ETFs like the Financial Select Sector SPDR Fund (XLF).
Chisani says it might also be worthwhile looking at financial names north of the border. Manulife Financial (MFC), he points out, is a Canadian multinational insurance company that offers a generous annual dividend yield of 5%.
Real estate investment trusts
When it comes to fighting inflation, few assets work as well as real estate.
So it’s no surprise that in today’s environment — where consumers prices are rising at their fastest pace in 40 years — real estate is also on Chisani’s shortlist.
He suggests taking a serious look at real estate investment trusts, which are publicly-traded companies that own income-producing real estate.
REITs are great “cash flow mechanisms,” Chisani says.
REITs collect rent from the tenants and pay regular dividends to shareholders. And because rents are going up, investors of high-quality REITs can look forward to collecting a steadily growing stream of dividends.
Additionally, real estate typically appreciates in times of inflation, making the asset class a natural hedge against spiking price levels.
Buying shares in a publicly-traded REIT is just as easy as buying stocks. And if you don’t want to pick individual names, ETFs such as the Vanguard Real Estate ETF (VNQ) or the Schwab US REIT ETF (SCHH) provide convenient exposure to large baskets of REITs.
Finally, Chisani points to metals, minerals and energy as proven ways to defend against the threat of rising interest rates. But he also highlights the fact that they have a different set of risks and rewards.
“When investing in metals and minerals, the risk associated with being in those sectors will be higher than conventional blue-chip dividend-paying stocks.”
The commodities market continues to be a volatile place. And for that reason, Chisani thinks ETFs represent the safest way for beginners to gain exposure to the space.
“I would use exchange-traded funds as diversified ways to participate in baskets and sectors of commodities,” Chisani says. “I think those could be quite lucrative down the path, and to a degree a great hedge against inflation in a client’s investment portfolio.”
Chisani singles out the SPDR S&P Metals & Mining ETF (XME) as an attractive inflation-fighter. He also says that Barrick Gold (GOLD), which pays regular dividends and recently raised its payout, could be worth a look for income investors.
For energy investors, Chisani suggests taking a look at Freehold Royalties (FRU), an Alberta-based oil and gas royalty company with assets in five provinces in Canada and eight states in the U.S. Freehold currently offers a dividend yield of 6.3%.
Sign up for our MoneyWise newsletter to receive a steady flow of actionable ideas from Wall Street's top firms.
Get a piece of commercial real estate
More from MoneyWise
- Warren Buffett says these are the best stocks to own when inflation spikes — with consumer prices at a 40-year high, it's time to follow his lead
- Jim Rogers warns of a ‘big collapse’ and recession fairly soon — here’s how to protect yourself from the possible pain
- Want to invest in $100 oil? Read these tips and warnings from commodities legend Rick Rule before you dive in
Pour your portfolio a glass of recession resistance
Fine wine is a sweet comfort in any situation — and now it can make your investment portfolio a little more comfortable, too.
Ownership in real assets like fine wine could be the diversification you need to protect your portfolio against the volatile effects of inflation and recession. High-net-worth investors have kept this secret to themselves for too long.
Now a platform called Vinovest helps everyday buyers invest in fine wines — no sommelier certification required.
Vinovest automatically selects the best wines for your portfolio based on your goals, and it tells you the best times to sell to get the best value for your wine.